Merit Pay

When teacher quality is measured by the degree
to which teachers affect student learning, as indicated by student test score
gains and principal evaluations, other reforms become possible, such as
compensation reform. Compensation plans that pay teachers differently for
different levels of performance are commonly called "merit pay,"
"pay-for-performance," or "incentive-based pay" plans. There is no single
merit-pay program; rather, the merit-pay programs that have been adopted across the
country have various features. For example, some plans reward teachers only for
increasing student test scores, while others include supervisor or peer
evaluations as measures of teacher merit. Still others include the amount of
professional development that teachers undergo as a sign of merit and a basis
for pay. Researchers for Vanderbilt University’s National Center on Performance
Incentives have reviewed various merit-pay plans and provided useful
descriptions.[143]

As we indicated in Part III, nearly all
schools nationwide and in Michigan pay teachers according to the single-salary
schedule. Unfortunately, the characteristics on which this pay schedule is based
do not correlate with greater student achievement gains. Under the current pay
system, teachers are encouraged to help their students learn primarily out of
concern for the students and the intrinsic rewards of doing a good job. True,
these are significant motives. Teachers tend to enter the profession because of
their love of children and their desire to serve others. Still, it is only
reasonable to recognize that they, like other people, are motivated to work
partly by financial rewards and the recognition those rewards signify.

Without the possibility of earning more money
for high-quality performance, teachers may be indirectly encouraged to meet only
minimum performance levels, such as maintaining order in the classroom or
keeping peace with parents. This outcome is even more likely when teachers are
observed only a few times per year by supervisors, and their individual
performance is not objectively measured by student test score performance gains.
Single-salary-schedule compensation policies have ensured that teachers are paid
the same amount whether their students improve or not, and across-the-board pay
increases are often guaranteed simply for showing up each year. Unfortunately,
as demonstrated in Part I, student achievement in Michigan is not high, and it
has not improved compared to the national average despite high and rising state
spending. In this context, alternative pay structures make sense. They reward
the key people — effective teachers — who can improve public education in the
state.

Some U.S. school districts have adopted
pay-for-performance for teachers, yet only a few districts in Michigan have even
begun to explore the possibility.[144]
The current discussion of merit pay is confused by historical debates over
pay-for-performance programs. Teacher merit pay has been tried at various times
over the past two centuries, and many of these experiments have ended in
failure. As Allan Odden and colleagues from the University of Wisconsin found,
the chief reason for these failures has been a loss of support from teachers and
the public due to difficulties in understanding how payouts were calculated, to
perceptions that bonuses were skewed by principal favoritism, and to a fear that
teachers would be discouraged from collaborating.[145]
Still, over the last decade, policymakers in Denver, Florida, Minnesota, Little
Rock and elsewhere have attempted to learn from merit pay’s past failures and
designed plans that appear to be leading to student success.[*]

In order to evaluate incentive-based programs
fairly, merit pay must be distinguished from other reforms, such as differential
pay, career ladders and inauthentic performance-pay plans like
"knowledge-and-skills" based pay, which provides extra compensation to teachers
for participating in extra education and training.[146]
As University of Wisconsin researchers Herbert Heneman, Anthony Milanowski and
Steven Kimball have written: "A teacher’s knowledge and skills are the basic
inputs that a teacher brings to the instructional process. These skills include
knowledge of content and pedagogy, skill in assessment and classroom management,
and general abilities, attitudes, and personality dispositions."[147]
Knowledge-and-skills pay plans are often classified as performance pay because
they provide financial incentives to teachers not only to improve student
achievement, but also to participate in extensive professional development.[148]
By contrast, authentic merit pay primarily rewards student outcomes, not teacher
inputs. To the extent that such plans focus on professional development, rather
than student achievement gains, it is confusing and misleading to classify them
as performance pay.

This distinction is important. In public
discussion, knowledge-and-skills-based pay, which many teachers unions now claim
to support, can easily be mistaken for genuine merit pay. For instance, in
September 2007, the U.S. House Education and Labor Committee held hearings on
the reauthorization of the No Child Left Behind Act. Reform proposals introduced
by committee Chairman George Miller, a Democrat, had included merit-pay
legislation that would have based teacher rewards for performance on student
achievement test score gains. Education Week’s David Hoff reported that Rep.
Miller was confused when, at the end of the hearings, "NEA President Reg Weaver
and AFT Executive Vice President Antonia Cortese objected to proposed
alternative pay programs for teachers, which are included in the section
addressing teacher quality."[149]
Hoff noted that Rep. Miller reminded the union leaders that the language in the
bill had been drafted based on prior conversations with the unions. Yet faced
with a true merit-pay program, the AFT’s Cortese spoke up and said, "We do have
specific concerns about a provision that would use test scores to evaluate
teachers."[150]

This exchange in Congress clarifies the
characteristics of authentic merit pay. Reconfiguring the teacher salary system
to allow principals to award higher salaries or higher raises based on student
achievement gains would be a meaningful reform.[†]

Teachers may be uneasy about proposals to
alter their base pay, however. Reform-oriented school boards may thus want to
propose that teachers get the same base pay, but receive bonuses for their
effectiveness in improving student test scores. Most of this section focuses on
the use of performance bonuses.

Although recent research (discussed below)
demonstrates that merit pay based solely on student achievement gains can
improve student test scores, policymakers may want to include the use of
supervisor evaluations in merit-pay proposals. Teachers concerned about the use
of statistical models to determine their bonuses may be better disposed to a
formula that includes a principal’s evaluation. A similarly helpful proposal
might base merit pay partly on group performance — in other words, rewarding
teachers based on how a team of teachers with whom they collaborate succeeds in
improving student performance. This approach may be particularly appropriate
with elementary and middle school teachers, since they often plan as a team.

How might these recommendations work in
practice? One suggestion would be to divide a $10,000 annual maximum merit-pay
bonus along these lines: 50 percent would correspond to an individual teacher’s
students’ average achievement gains as determined through a value-added
assessment; 30 percent would correspond to the average gains of the teacher’s
team; and the final 20 percent would correspond to a supervisor evaluation.[‡]
Individual school districts and schools considering merit pay should make their
own determinations about the percentages of bonus pay that might used with these
three categories.

The exercise should prove worthwhile because
merit pay is a viable reform that can indeed lead to greater student
achievement. Writing for the National Bureau of Economic Research, David Figlio
and Lawrence Kenny used a national sample of longitudinal student data to
estimate the impacts of a variety of performance-pay plans related to student
achievement. For example, the most restrictive (and hypothetically
most motivating) plans were those that "had at least one of the following
indicators of high salary incentives: a) at least a 20 percent salary range, b)
merit raises that are given to no more than 5 percent of the teachers, or c)
merit bonuses that are received by no more than 7 percent of the teaching
staff."[151]
Although not all of the student achievement gains associated with performance-pay plans in the study were particularly large (between 1.3 and 3.2 points),
Figlio and Kenny found, "[T]he use of teacher salary incentives is associated
with higher levels of student performance, all else equal."[152]

Figlio and Kenny carefully noted that not all
types of programs have this association, as merit-pay programs "that award
bonuses to very large fractions of teachers are apparently not associated with
student outcomes."[153]
These findings provide strong correlational evidence that teachers tend to act
in ways that raise student achievement in schools where meaningful performance
incentives exist. This study does have a notable limitation, however, since
Figlio and Kenny were able to establish only a correlation between merit pay and
student outcomes, not a clear causation.

Many research organizations are now releasing
reports with recommendations regarding which features of merit-pay plans will
most likely lead to success.[154]
Many of these suggestions address not only the key elements of successful reform
programs, but also the need to involve teachers in the planning process and to
avoid supplanting useful collaboration with counterproductive competition.
Reports on merit pay often summarize existing research and make recommendations
based on program evaluations of specific merit-pay experiments.

Two such program evaluations are the first-
and second-year reports by University of Arkansas researchers of the Achievement
Challenge Pilot Project, a merit-pay program in Little Rock.[155]
The ACPP bases awards solely on student achievement gains that occur during a
single school year. The program has operated for three school years, beginning
with one school in 2004-2005, adding a second in 2005-2006 and adding three more
in 2006-2007. Thus, by the end of the program, five schools were part of the
ACPP.

In January 2007, Marcus Winters, Gary Ritter,
Joshua Barnett, Jay Greene and others at the University of Arkansas Department
of Education Reform released their first report on the impacts of this program.[156]
In this report, they examined the effects of the program in the first two
schools and concluded that the students improved by 7 percentile points on
average on standardized test scores.

Graphic 11 below shows how bonuses were
awarded in the Little Rock experiment for four of the schools in school year
2006-2007.[**]
Teachers earned rewards based on the magnitude of their students’ gains, and
other school personnel — including principals, aides and even custodians —
earned awards based on schoolwide gains. For individual teachers whose students’
scores can be directly linked to them (such as a fourth-grade teacher in a
self-contained class), the percent growth was calculated for each student by
subtracting the prior year score from the current year score and then by
dividing the difference by the prior year score. These calculations were
completed using normal curve equivalent scores.[††] In determining the payout for these teachers, the average percentage of growth
for all students in the class was calculated by adding the individual percentile
growth scores and dividing that sum by the number of students. A teacher was
then awarded the per-child dollar figure for that percentage range multiplied by
the number of students in his or her class.[157]
For employees like principals, physical education teachers and music teachers,
whose students’ scores could not be directly linked to them, the payout was a
lump sum based on the average schoolwide percentage growth. Individual awards
exceeded $8,000, and personnel in both of the schools included in the first-year
report earned total bonuses of more than $200,000.[158]

This first research report on the Little Rock program also included survey
findings comparing the attitudes of participating teachers with those of
teachers in control schools. Participating teachers reported no increase in
counterproductive competition among teachers. In fact, these teachers rated the
atmosphere of their schools more positively than those in control schools.
Moreover, teachers in participating schools reported being less likely to find
low-performing students burdensome.[159]

Although the first-year report suggested that
a merit-pay program could improve student performance, the analysis did have
several limitations, including small sample sizes. The second-year report on the
Little Rock program, however, expanded the sample size, provided a stronger
control group for comparing teacher attitudes and substantiated the claims of
the first-year report.[160]
In this report, conducted by a University of Arkansas research team that
included Gary Ritter, Nate Jensen, Brent Riffel, Marcus Winters, Joshua Barnett,
Jay Greene and Marc Holley (the author), teachers in participating schools were
included and compared to teachers in nonparticipating schools across the
district. Using appropriate statistical controls in their value-added model,
they found that teachers in the merit-pay program were significantly more
effective. Survey data from the expanded sample in the second-year report did
not show the program having as positive an effect on teacher attitudes as in the
first-year report, but the presence of merit pay did not appear to damage the
school climate or lead to counterproductive competition.[161]

Concerning merit-pay plans that target
individual teachers, Charles Clotfelter and Helen Ladd wrote in 1996: "The
limitations of such programs are well known: the lack of consensus about what
makes for effective teaching; the fact that gains in student achievement often
reflect not just the actions of an individual teacher but also the more general
environment for learning in the school; and the growing recognition that
rewarding individual teachers encourages them to compete with one another rather
than to work cooperatively."[162]

Little Rock ACPP teacher survey data suggests
that merit pay for individual teachers does not necessarily degrade the school
climate as Clotfelter and Ladd suggest. Moreover, as merit-pay programs have
evolved, program developers have more often solicited teacher input and achieved
greater "buy-in" from teachers at the outset. Also, the findings of Carolyn
Horan and Vicki Lambert, researchers for the Beryl Buck Institute for Education,
concerning a related system, the Utah Career Ladder Program, suggested that
while some teachers saw increased competition among their peers, not all
teachers viewed this change as negative.[163]
In addition, merit-pay program developers have learned from past failures and
created award systems in which all participants can earn bonuses, rather than
just the top few. Perhaps, as a result, recent programs have tended to lead to
less divisiveness and competition.

On reflection, this result need not be
surprising. While competitiveness under the wrong circumstances could damage
team spirit, merit pay does provide incentives that motivate teachers and other
building personnel to focus their time and effort on promoting student learning,
thus emphasizing the goal that entices many educators to enter the profession in
the first place. Moreover, because authentic merit-pay programs reward only
teachers who actually produce results, such programs discourage the retention of
teachers who are simply in the classroom to draw a paycheck, who cannot
communicate effectively or who do not have the problem-solving ability to
address students’ learning challenges. A system that pressures such teachers to
improve or to leave may also help morale, since their presence can depress the
spirits of dedicated personnel.

Further, merit pay has the potential to
attract a different type of professional to the teaching work force.[164]
The current pay structure can have the unintended consequence of attracting
risk-averse, lower-performing candidates to the profession. Merit pay, in
contrast, promises higher compensation to teachers who may be more tolerant of
risk — that is, to those who are willing to make their pay depend in part on
their ability to help students learn. It may well benefit morale for teachers to
see themselves as part of a more enterprising team.

Some may question whether a compositional
change in the teaching work force resulting from the attraction of more
risk-tolerant people would be a good thing. Yet risk-tolerance regarding a
performance-based salary system is different from risk-tolerance involved in
hazardous activities, such as sky diving, for example. Having high-performing,
enterprising teachers who are adept at problem-solving and willing to work
harder to promote student achievement may be exactly the outcome which
policymakers should strive for.

Another potential concern can be raised
concerning whether an excellent teacher with students in the top quartile can be
compared directly with an excellent teacher with students in the bottom
quartile. Might their average gains differ due to the students’ dissimilar skill
levels and potential for improvement? It is true that there are challenges in
identifying exactly what a one-point gain in student performance means at
different parts of the performance scale. Nonetheless, there are ways to address
this concern. For example, one improvement upon simply using percentile scores
to make comparisons of student achievement gains at different performance levels
is to use normal curve equivalents. Moreover, when scores are converted to the
appropriate standardized scales, comparisons even across grade levels are
possible. These conversions are possible using the state achievement tests
currently in place in Michigan.

A related challenge involves whether it may be
especially difficult to raise the achievement of the highest achievers. It is true,
perhaps, that a "ceiling" effect may occur, so that students at the 90th
percentile do not have much room to grow. Many high-achieving students may have
already maximized their potential, and teachers may find it extremely difficult
to raise those students’ average performance dramatically. Teachers, however,
should be involved in designing performance-pay plans, and they may decide to
approach this concern in a number of creative ways. For example, teachers in a
given school may decide that teachers of certain classes should have their
potential bonus tied more heavily to supervisor evaluations. Alternatively, as
we note below, teachers may decide that instructors of advanced students should
be rewarded in part simply for maintaining a high level of performance.

Clotfelter and Ladd suggest that ceiling
effects (the fact that certain high-performing students have little room to
improve) and scaling effects (differential rates of progress depending on
whether a student’s past performance has been strong or weak) can bias
value-added models in favor of low-performing or high-performing students.[165]
One way to address these issues is to reward teachers based both on growth and
attainment. Practically speaking, this means that program designers may choose
to reward teachers of students who have routinely scored above the 80th
percentile merely for sustaining or slightly improving the original score.

As with many of the recommendations offered in
this primer, adoption and implementation of a compensation system with a
merit-pay component could occur either at the local district level or at the state
level. Local schools and districts will want to include teachers in the design
of a particular plan, however, so local districts, rather than the halls of
Lansing, are probably better places to settle the details of how teachers would
earn their payouts.[‡‡] There are myriad details involved, after all, and teachers should be involved in
making these decisions, since the outcome can affect teachers’ willingness to
support a merit-pay system.

Fortunately, merit-pay plans have begun to
emerge in several locations across the country, so Michigan districts would have
a choice of models to adapt to their specific setting. In many of the plans,
only a small portion of the merit-pay bonus is based on individual classroom
performance (as opposed to professional development or schoolwide achievement),
but district leaders drawing on these models can shift the emphasis easily
enough. Prominent merit-pay systems include those in Little Rock (see Graphic 11
above), Houston, Denver and New York City.[***] The latter two programs allow individual schools flexibility in the design of
the merit-award systems, creating a multiplicity of programs about which it is
difficult to generalize.

Part of the reason for the proliferation of
teacher merit-pay plans is that the federal government made approximately $100
million available for its "Teacher Incentive Fund" in 2006. The TIF program was
designed to promote teacher compensation systems that would use student
performance as a part of the basis for teacher pay. This competitive federal
grant program has supported a total of 34 performance-pay programs located in
over 18 different states and Washington, D.C. Not all recipients of TIF funding
were traditional public schools; the New Leaders Inc. charter school network
received a grant of more than $20 million spread over five years for a
performance-pay program.[166]
No Michigan schools participate in the TIF program, due partly to the fact that
of the 143 applications submitted nationwide, only four came from Michigan, a
state with 552 conventional school districts and more than 200 charter schools.
Yet given the findings presented above, merit pay is an essential teacher
quality reform that policymakers in Michigan should consider.

[*] For summaries of these plans or synopses
and links, see Podgursky and Springer, “Teacher Performance Pay: A Review,” or
“Reforming Teacher Pay” (Policy Innovation in Education Network, 2007),
www.edpolicyinnovation.net/pie/template/topic.cfm?topic=24, (accessed May 18, 2008). The plans in these various locations may have some features of “knowledge and skills based pay,” but they also have a component that is based on student achievement gains.

[†] The next section, “Differential Pay,” describes how principals could also be given discretion to pay more for teachers in subject areas that are difficult to staff.

[‡] For teachers who do not have students whose test scores can be attributed primarily to them, such as resource teachers or music teachers, bonuses would be rewarded for schoolwide gains.

[**] The table represents payouts in the third year of the experiment; the payouts in the second year, at the time of the first-year report by Winters et al., were not substantially different.

[††] In the earlier section “Using Value-Added Assessment to Define Teacher Quality,” there was a reference to statistical methods that could filter out nonteaching factors that might lower (or raise) student test scores. These methods involve regression analysis, and they provide a sophisticated means of determining the impact a teacher has had on student achievement.

Readers familiar with regression analysis will recognize that this statistical method was not employed to determine the merit-pay bonuses in the Little Rock experiment (though regression analysis was indeed used by the University of Arkansas researchers to establish that the program had a statistically significant effect on test scores). While the Little Rock model forgoes some of the virtues of statistical regression, it avoids some of its drawbacks, particularly the problem of making the method of determining the payouts clear and accessible to everyone affected by the plan, including parents and the public. Nevertheless, teachers could certainly request the use of statistical regression to determine payouts if they became concerned that a particular payout program would otherwise fail to account for, say, their students’ socioeconomic disadvantages. In fact, the regression model could be developed in consultation with them and their representatives, so that they could assess the potential drawbacks of the model before adopting it.

[‡‡] Many performance-pay programs require a supermajority vote of the school staff for the school to participate. For example, in Chicago’s Recognizing Excellence in Academic Leadership program, which uses the Teacher Advancement Program model, participating schools were required to obtain a 75 percent majority vote before adopting merit pay. Including a teacher vote as a prerequisite for program implementation may contribute to the likelihood of a program’s adoption and ultimate success. See “Memorandum of Understanding Between the Chicago Board of Education and the Chicago Teachers Union, Local No. 1, AFT, AFL-CIO,” www.ctunet.com/quest_center/documents/REALAgreement1.3.08.doc (accessed June 25, 2008).

[***] For information about the Houston Independent School District merit-pay plan, see “Houston Independent School District Project SMART” (Center for Educator Compensation Reform, 2008), www.cecr.ed.gov/initiatives/profiles/projectSMART.cfm (accessed May 18, 2008). Regarding the Denver Public Schools Professional Compensation System for Teachers, see “Procomp” (Denver Public Schools, 2008), http://denverprocomp.org/ (accessed May 21, 2008).